Investment bankers’ advisory fees fell to their lowest level in nearly a decade as the industry suffered a wave of job cuts due to prolonged deal delays.
Fees for completed global mergers and acquisitions fell 35% in the first half of the year to $12.8 billion compared to 2022, the lowest level since 2014, according to data provider Refinitiv.
Global mergers and acquisitions plunged 38 percent to $1.3 trillion in the first half, the lowest deal volume since the start of the pandemic in 2020, as higher rates, tougher antitrust measures and geopolitical tensions hit the market .
Transactions led by private equity groups, usually a key driver of dealmaking, also collapsed. Global private equity-backed M&A activity fell to $263.3 billion in the first six months, down 51 percent from last year.
Deals between private equity groups have been hampered by a number of factors, including rising debt costs, concerns about the economic outlook and difficulties in agreeing transaction valuations.
“There are a lot of headwinds,” said David Walker, a partner at the law firm Latham and Watkins, who focuses on private equity deals.
Job cuts at the biggest U.S. banks this year are on track to top 11,000 as Wall Street grapples with the worst hiring market since the 2007-2008 financial crisis after an era hiring spree of the pandemic.
Leading banks such as Goldman Sachs and JPMorgan, which piled up profits during the recent deal boom, are swinging the axe. Goldman, a leader in the M&A advisory league table last year, is cutting fewer than 250 jobs in new cuts across the bank, mostly at the senior level.
“We are managing the firm more tightly and preparing for a tougher environment,” Goldman President John Waldron warned on a conference call this month. “Activity levels are definitely more muted.”
However, there were signs of optimism for deal-making in the second quarter, up 23% from the first, which was the slowest start to the year in a decade.
The uptick in the second quarter was helped by less traditional approaches to transactions.
“We’re seeing hostile offers, unsolicited (offers), outbids, spin-offs, spin-offs, whatever,” said Melissa Sawyer, global head of the mergers and acquisitions group at law firm Sullivan and Cromwell. “People just have to get more creative in how they do things.”
The spin-off of the consumer unit of multinational health care company Johnson & Johnson marks the largest U.S. initial public offering in nearly 18 months.
And Switzerland-based commodities trader Glencore’s hostile approach to buy Canada’s Teck Resources for $23 billion in April sparked one of the mining industry’s biggest takeover battles in decades.
Although Teck has repeatedly rebuffed Glencore’s advances, natural resources deals have otherwise been a rare bright spot in a slower M&A environment as companies focus on investing in metals needed for the transition to cleaner energy sources and electric vehicles.
Groups ranging from traditional carmakers to a growing number of private equity firms are among the companies looking to invest in natural resources and cleaner energy, a shift from recent years.
“Everyone is looking to secure and produce short- to medium-term supply (in natural resources),” said Citi’s Barry Weir, who heads M&A in Europe, the Middle East and Africa. “We’re seeing a much wider universe of buyers.”
Another bright spot was healthcare, where deal volumes rose 35% to $174.6 billion in the first half compared to the same period last year, as companies sought to renew drug supplies to offset a sharp decline in sales of products related to the pandemic.
The biggest contributor was Pfizer’s $43 billion acquisition of Seagen, an oncology-focused biotech company.
But rising geopolitical tensions between Washington and Beijing are complicating deal-making as some Western groups pull back from investments in China.
Still, it opens up other avenues for transactions as European companies turn to the US for expansion.
“In the last decade, there has been a very strong focus on Asia, including China,” said Birger Berendes, who leads Bank of America’s mergers and acquisitions group in Emea.
“Companies are now realizing that the US may be really well positioned for the next decade in terms of growth and stability, so we’ve seen a lot of European clients looking to expand into the US.”
With a presidential election coming up in the US, this could also affect the appetite for transactions. “We’re entering an election year, and it’s never clear at these times how that affects deal-making or not,” added Krishna Vereraghavan, a partner at the law firm Paul Weiss.
But despite a variety of factors slowing down transactions, M&A volumes have held back compared to earlier, prolonged slowdowns since the dotcom crash and global financial crisis.
“If this is the bottom right now, I would take it as the bottom in any cycle because the activity just hasn’t stopped,” said Oliver Lutkens, co-head of Emea advisory at BNP Paribas.